Post #2691 by mungofitch on the Mechanical Investing board

Investment Strategies / Mechanical Investing

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Here are the stocks VL1500 of Rus1000 for 2024-09-30 that meet "earnings are positive and book is < 0"
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Hmmm. Hotel companies are overweighted in the list (TNL, HLT, MAR, CHH). Something to do with property write downs?

Tobacco and airlines too. As with any quant screen, it will have flaws. You can also have negative book value by losing a HUGE amount of money at some point in the past. The notion is that the average is somewhat better than a crap shoot.

Still, it's a good neighbourhood: ROE very high, or infinite due to positive-earnings-negative-book.
In the VL group, top 30% by ROE return about 3.4%/year better than the bottom 30% by ROE. It's a simple starting criterion that makes a lot of business sense, especially if you can find a way to filter out a few obvious duds, for example if naively calculated ROE is huge because they're wildly overleveraged, or due to depressed book from a huge loss in the past.

Jim

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